Abstract

http://ssrn.com/abstract=1587043
 
 

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Any Regulation of Risk Increases Risk


Philip Maymin


NYU Poly - Department of Finance and Risk Engineering

Zakhar Maymin


Independent

April 20, 2012

Financial Markets and Portfolio Management, Forthcoming

Abstract:     
We show that any objective risk measurement algorithm mandated by central banks for regulated financial entities will result in more risk being taken on by those financial entities than would otherwise be the case. Furthermore, the risks taken on by the regulated financial entities are far more systemically concentrated than they would have been otherwise, making the entire financial system more fragile. This result leaves three directions for the future of financial regulation: continue regulating by enforcing risk measurement algorithms at the cost of occasional severe crises, regulate more severely and subjectively by fully nationalizing all financial entities, or abolish all central banking regulations including deposit insurance to let risk be determined by the entities themselves and, ultimately, by their depositors through voluntary market transactions rather than by the taxpayers through enforced government participation.

Number of Pages in PDF File: 25

Keywords: regulation, crisis, portfolio management, value-at-risk, risk

JEL Classification: G18, G21, G28, G38

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Date posted: April 11, 2010 ; Last revised: April 22, 2012

Suggested Citation

Maymin, Philip and Maymin, Zakhar, Any Regulation of Risk Increases Risk (April 20, 2012). Financial Markets and Portfolio Management, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1587043 or http://dx.doi.org/10.2139/ssrn.1587043

Contact Information

Philip Maymin (Contact Author)
NYU Poly - Department of Finance and Risk Engineering ( email )
Brooklyn, NY 11201
United States

Zakhar Maymin
Independent ( email )
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